Closing the gap in Gateway Cities

Originally published June 29, 2014 in Banker & Tradesman.

Redevelopments such as Winn Companies' Boot Mill in Lowell have shown the potential of smart-growth projects in Gateway Cities. Advocates say more state aid is needed to encourage developers to take risks on such projects. Courtesy photo/Banker & Tradesman.

Redevelopments such as Winn Companies’ Boot Mill in Lowell have shown the potential of smart-growth projects in Gateway Cities. Advocates say more state aid is needed to encourage developers to take risks on such projects. Courtesy photo/Banker & Tradesman.

A gaping hole greets residents and visitors to New Bedford’s downtown. The building that once stood there was torn down after years of vacancy and neglect, said state Rep. Antonio Cabral, D-New Bedford. Although centrally located, no developer has touched the property because the cost of new construction outweighs anticipated rents.

“The finances just don’t work to take on any project using that parcel,” Cabral said, adding that it’s not a situation unique to New Bedford.

Across the Bay State, Gateway Cities, or midsize urban centers outside Boston with an industrial past, are struggling to attract developers amidst high levels of unemployment, low education attainment rates, and low property values. (Eleven communities were originally defined as Gateway Cities in 2007 study by MassInc and the Brookings Institute. The designation has since been legally expanded to 26 communities.)

Just how large is the typical shortfall? Around 30 percent, Cabral says. So, in an effort to close the gap between a profitable development and a nonexistent one, Cabral, along with Pittsfield Sen. Ben Downing, proposed the state make up the difference and spur development in these once-mighty economic engines.

Initially called H311, or An Act to Promote Transformative Development in Gateway Cities, Gov. Deval Patrick rolled the proposed fund into his economic development bill, which was subsequently passed as part of House Speaker Robert DeLeo’s version of a similar bill. The bill is now in the Senate now, where representatives and city leaders say they are putting on pressure to push it through.

If passed, it would establish a Transformative Projects Fund managed by MassDevelopment. Developers and city officials could apply with particular projects in mind and the state would contribute up to 30 percent of the project’s cost.
“This fund could come in and say, “For this project, here are the finances and if you still aren’t able to put all the numbers together, we’ll close the gap and help this project get off the ground,’” Cabral said.

It’s not a new strategy for developers in Gateway Cities. Gilbert Winn, managing principal at WinnCompanies, said his family’s firm has spent decades developing in Gateway Cities in Massachusetts and similar communities around the country.
“It’s the Worcesters, and the Rochester, NYs, and the Pittsburghs of the country,” Winn said. “In many cases, these cities are reinventing themselves. They still have a great talent base, they still have people who live there and want to live there and will always live there, but they have to reinvent their downtowns.”

Although more people are flocking to urban centers of all kinds, Winn said properties in places like Worcester and Fall River still can’t command rents anywhere close to what Cambridge and Boston properties receive. At the same time, the cost of construction isn’t dramatically different.

 

Costs And Risks Remain High

Benjamin Forman, director of the Gateway Cities Innovation Institute, says redevelopment can be even more costly because the projects often involve buildings that have been vacant for decades, need historic preservation or environmental clean-up or involve multiple property owners.

“If you want a truly transformative development, that is a district-wide project, there are also fewer resources to manage the project from the city’s perspective and they have two-year mayoral seats,” Forman said. “So, there’s uncertainty and limited capacity and the markets are just unproven. No one knows the value if you were to redevelop it, so there’s a lot of risk.”

WinnCompanies makes the math work by relying on already-existing federal and state tax credits and incentives, many of which are aimed at historic preservation and affordable housing, Winn said. Still, Winn admitted local municipalities often kick in infrastructure improvements or other amenities to ensure the projects are successful.

There’s a big incentive for city governments to partner with developers, said Chelsea City Manager Jay Ash. Chelsea has seen a dramatic transformation as steep rents in Boston and Cambridge have pushed homebuyers and renters to proximate communities. While Chelsea has long had a large concentration of affordable housing, Ash said the city initially had trouble attracting market-rate housing.

“The key to the economic vitality of Gateway Cities is to make sure they have communities with incomes across the spectrum,” Ash said, adding Somerville and Chelsea have both benefitted from commitments to extend MBTA services to those areas.

As former mill and textile towns, many Gateway Cities are already connected to regional transportation lines, a fact that is often overlooked, said Lawrence planning director Theresa Park. Park was recently hired by the city after a seven-year stint in Lowell. Still, nothing can replace visionary leadership at the municipal level, Park said.

With both Lowell and Lawrence, Park said there is a strong commitment from elected officials, city hall administrators, institutional leaders and the private sector to spur economic development.

“They realize there is a mutual interest in working together,” Park said. “There is a level of civic-mindedness as far as the work they do in improving the overall wellbeing of all residents.”

Few Gateway Cities can claim the resounding success in redevelopment that Lowell has seen over the past decade and a half. Park pointed to the Ayer Lofts as the beginning of Lowell’s economic transformation. Completed in the spring of 2000 as an artists’ live-work space, the Ayer Lofts were once home to commercial and light industrial uses but its two buildings had been vacant for nearly 20 years.

“All of a sudden, people realized there were these great untapped opportunities and that led to other projects happening throughout the city,” Park said.

Lowell city officials were quickly able to turn millions of square feet of abandoned mill buildings into renovated historic properties, some of which now command rents that compete with Boston and Cambridge.

Still, it is unclear how much of this development is a product of changing markets and how much can be attributed to public investment. The 2013 white papers produced by MassInc that originally proposed the Transformative Projects fund called for $125 million annually over the next 10 years. The most recent House bill, which is currently in the Senate, calls for $17 million to be placed in that fund annually.

“Everyone has different ideas about the right number,” Ash said, adding city leaders involved in the Gateway Cities caucus understand the state has competing funding needs. “We’re trying to balance the economic challenges while also recognizing that you have to spend money to make money.”

James Keefe, president of Boston-based developer Trinity Financial, said advocates are lobbying for the fund to be increased to $50 million a year for three consecutive years. The current allocation, he said, is too low to have a major effect on the market.

“You divide that money by the 26 Gateway Cities, and it’s going to result in grants that are not going to be transformative projects,” he said.

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